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Here’s a letter to Deirdre McCloskey, who e-mailed me this morning:
Dear Deirdre:
I’m delighted that you like the point I make in my post on the applicability to a high-wage country, such as America, of the Stolper-Samuelson theorem [2]. This point does seem to be both valid and important: Changes in relative wages caused by a freeing of trade induce many low-skilled workers who are said to ‘lose’ as a result of free trade to acquire more skills. These higher skills enable these workers to join the ranks of workers who are said to ‘win’ as a result of free trade.
You then interestingly ask if my point unintentionally supplies ammunition to proponents of minimum wages: “Poor workers, when the minimum wage is raised above these workers’ current wages, will have more incentive to make themselves worth the higher minimum wage, eh?”
You’re correct, of course, that many workers will be induced by a hike in the minimum wage to acquire more skills than otherwise. (This effect, by the way, will be offset at least somewhat by the minimum-wage-induced reduction in entry-level jobs – jobs that for many workers are a major source of skill acquisition.) But – and I’m sure you agree – not all inducements to skill acquisition are economically justified. Inducements naturally generated by market forces warrant a presumption of ‘efficiency’; inducements artificially created by government interventions do not.
Free trade encourages a pattern of skill acquisition that is as consistent as is practically possible with resource scarcities and with consumer and worker preferences. Not so, I think, with the skill acquisition induced by a minimum-wage hike. Any skill acquisition induced by a minimum-wage hike will be super-optimal both in quantity and timing.
But even if this last point is incorrect, free trade differs from minimum wages in a more fundamental way. With free trade, each low-skilled worker who either won’t or can’t acquire higher skills in response to the rise in wages of high-skilled workers will nevertheless find employment as long as she is free to accept wages low enough to make her profitable to employ. In stark contrast, with a minimum wage in place, a low-skilled worker who either won’t or can’t acquire higher skills will find herself unemployed because she is not free to accept wages low enough to make her profitable to employ.
Of course, you better than I know all of the above. I write it out chiefly to polish and solidify my own understanding of the matter.
Thanks! I trust that mid-summer is treating you well and that we’ll soon again be able to get you back out in person for a visit to GMU Econ and Mercatus.
Sincerely,
Don